Comcast executives expect Disney to stick to its agreement to acquire the remaining stake in Hulu

The future of Hulu continues to be an open question as Comcast and Disney still haven’t agreed on terms that will settle the company’s future ownership.

But Comcast executives are planning on Disney buying them out — even if they’d prefer otherwise.

Disney owns two-thirds of Hulu and has an option to buy the remaining 33% from Comcast as early as January 2024. Some analysts and industry watchers have speculated Comcast might try to buy Hulu from Disney rather than the other way around. Comcast Chief Executive Brian Roberts has been a long-time believer in Hulu and has historically pushed to keep the asset rather than sell, including in 2013, when Roberts nixed talks with DirecTV, according to people familiar with the matter.

Comcast broached the idea of buying all of Hulu from Disney after Disney agreed to acquire the majority of Fox’s assets as part of a $71 billion deal that closed in early 2019, said two of the people, who asked not to be named because the discussions were private. Disney, armed with 66% ownership after acquiring Fox’s minority stake in Hulu, dismissed the idea, the people said.

Blocked from buying all of Hulu, Comcast’s sustained belief in the business led to the unusual agreement the two companies reached in May 2019, with Comcast agreeing to sell Disney its minority stake as early as 2024. As part of that transaction, Disney guaranteed a sale price valuing Hulu at a minimum of $27.5 billion.

That amount spiked earlier in the pandemic, giving Comcast some hope that Disney may choose to unload Hulu rather than pay Comcast a huge check for the remainder, two of the people said. Offloading Hulu would have allowed Disney to put its focus and money primarily on Disney+.

“I think if Disney could roll back the clock today, I’m not so sure they would enter into that deal,” said Neil Begley, an analyst for Moody’s Investors Services. “Disney has this huge bill to pay in 2024 at a time when they’re already investing a lot of money into Disney+.”

Acquiring Hulu from Disney would also supercharge Comcast’s streaming efforts. Hulu would instantly become Comcast’s flagship streaming asset, replacing NBCUniversal’s Peacock, which has added just 13 million paid subscribers in its nearly two years of existence. Hulu has 46.2 million subscribers. Peacock could live on as NBCUniversal’s free advertising-supported option. Peacock already has a free tier, with millions of users.

Several top Comcast executives also think Hulu doesn’t make as much sense paired with Disney’s assets as it would at NBCUniversal, especially with the recent announcement that Disney+ plans to launch an advertising-supported tier in December, according to people familiar with the matter. Hulu has been Disney’s advertising-supported service for years. Disney could have positioned Hulu as its advertising play going forward, but CEO Bob Chapek has chosen to make versions of both Disney+ and Hulu with and without commercials.

Spokespeople for Disney and Comcast declined to comment.

Netflix’s slowing growth this year has led to an overall devaluation in the streaming sector. Comcast executives value Hulu “significantly higher” than $27.5 billion, and possibly up to $50 billion, one of the people said. That’s down from around $60 billion during the pandemic, the person said. If Disney sticks to its plan to buy out Comcast by January 2024, there’s still time for significant valuation fluctuations.

Disney’s decision to lower Disney+’s 2024 guidance and its subsequent move to raise prices signaled to Wall Street that Chapek is no longer focused on adding subscribers at all costs.

It’s sent a signal to Comcast that Hulu is likely in Disney’s long-term plans. Excluding Hulu with Live TV, Hulu’s average revenue per user is $12.92 per month. That’s nearly triple Disney+’s global ARPU of $4.35 and more than double Disney+’s ARPU in the U.S. and Canada ($6.27).

Disney has built a streaming strategy around bundling Disney+, Hulu and ESPN+. While Disney raised Disney+’s price by 38% and ESPN+’s price by 43%, it only bumped its bundled offering of Disney+, Hulu (with ads) and ESPN+ by $1, from $13.99 to $14.99. That suggests Disney’s most preferred option is customers pay for the entire bundle, including Hulu.

Media and entertainment companies have begun focusing on building profitable subscribers, rather than simply acquiring subscribers, in recent months as industrywide streaming growth has slowed. If Disney isn’t trading on Disney+ growth, Hulu becomes a more important part of its long-term strategy.

“People are getting more judicious about their spend,” Kevin Mayer, Disney’s former head of streaming, said on CNBC last month. “There’s a renewed emphasis from Wall Street not just on the topline subscriber number but on the bottom line. I think that’s healthy.”

There’s also the issue of competitive dynamics. A primary reason Disney held on to Hulu, and acquired other Fox assets, was specifically to keep them from Comcast, according to people familiar with the matter. Handing Hulu to Comcast would alter the balance of power in the media world and weaken Disney, then-CEO Bob Iger thought, the people said.

Comcast has already taken steps to weaken Hulu, assuming Disney will keep it. Earlier this year, Comcast made the decision to remove content such as “Saturday Night Live” and “The Voice” from the streaming service and put it on Peacock instead. That change takes place later this month.

Comcast has already earmarked some of the proceeds it’ll receive toward paying down debt. Comcast executives say they don’t need the cash and aren’t independently looking to accelerate a timeline, two of the people said.

Activist investor Dan Loeb’s Third Point Capital bought a new stake in Disney last month, arguing Disney should not only complete its deal for Hulu, it should accelerate its timing.

“We urge the company to make every attempt to acquire Comcast’s remaining minority stake prior to the contractual deadline in early 2024,” Loeb said in a letter addressed to Chapek. “We believe that it would even be prudent for Disney to pay a modest premium to accelerate the integration but are cognizant that the seller may have an unreasonable price expectation at this time (while noting the seller has already made the decision to prematurely remove their own content from the platform.) We know this is a priority for you and hope there is a deal to be had before Comcast is contractually obligated to do so in about 18 months.”

Disney hasn’t publicly addressed the specifics of Loeb’s requests and hasn’t made a decision on whether it plans to speed up a timeline to buy Comcast’s stake in Hulu, according to people familiar with the matter.

Disclosure: Comcast is the parent company of NBCUniversal, which owns CNBC.

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